Realism About Georgia

December 10, 2003
By Nikolas Gvosdev

I've received some critical comments about last week's column, especially as it related to the situation in Georgia. According to this criticism, I am apparently missing the strategic opportunity that has presented itself to the United States to reshape the Caucasus.

No, I am not ignorant of that opportunity.  I don't think, however, that we are prepared to shoulder the costs – nor are we prepared to offer the Georgians the very real assistance they would need if we are serious about "breaking" Georgia out of the Russian orbit.  Let me explain.

Let's start with some basic facts.  54 percent of the population lives below the poverty line.  Despite U.S. assistance totaling more than $1.8 billion over the last decade, Georgia's foreign debt now stands at $1.8 billion, and there is a very real  danger that Georgia might default.

Any new Georgian government will have to consider making deep cuts in expenditures for defense, security, health care and social programs in order to begin to make any repayments on its debts.

The bottom line is that Georgia remains very dependent upon Russia. This is a reality. Acting President Nino Burjanadze's statement, "Georgia should not sell its independence for electricity," is a wonderful slogan for rallying crowds and it plays well in Washington. It presupposes, however, that Georgia has something of value with which to pay for needed supplies of energy. Indeed, one of her first acts as interim president was to appeal to Russia for a deferment on repayment of debts owed for past supplies of electricity and to ask the West for additional financial resources.

"Georgia needs additional resources for creating a reserve of energy. These resources may be provided by the European Union and the U.S. Considering the current situation, I intend to ask Russia to give us a deferment in the repayment of Georgia's current debts on electricity imported from Russia," she stated.  But those resources--not in sufficient amounts, at any rate--aren't likely to be forthcoming from the West.

There are other factors to be considered.  The Georgian elite may want Russian military bases to be removed, but the remaining facilities, particularly the one in Javakheti, provide jobs for a significant portion of the local population.

Russia's UES is prepared to provide electricity for Georgia even though Georgia owes the company $3.1 million for past services.  UES CEO Anatoly Chubais has guaranteed that the firm will continue to supply electricity even though Georgia cannot guarantee payment--and Georgia is expected to import more than 1 billion kilowatt hours of electricity from Russia this winter.

If Georgia cannot pay for power in cash, then it must be prepared to offer assets in return for continued power.  It is amazing that U.S. commentators somehow expect that Russian firms should altruistically provide gas and power to Georgia.  After all, U.S. firms are not prepared to do such a thing.

UES currently owns a 75 percent stake in Telasi, Tbilisi's power distribution network, two power units of the Tbilisi power plant, a 50 percent stake in AES-Transenergy, which exports power from Georgia to Turkey and management rights to Hramesi, the owner of two hydroelectric plants.  As a result, UES now controls 20 percent of Georgia's electricity-generating capacity.

Giving Russian firms greater control over gas distribution is also the only means that Georgia has to continue importation.  Georgia is already nearly $400 million in arrears to Turkmenistan for past deliveries.  And it is important to remember that Georgia pays an intra-CIS price for gas--nearly half of what European countries pay for gas imports.

Finally, let's not forget that at least 500,000 Georgians live and work in Russia, and that these expatriates send an estimated $600-$700 million back to their families.  For many, the wages of Georgian guest workers in Russia is the only thing keeping families solvent.

So, these realities impose some hard choices on our Caucasus policies.

We have to assess what national interests of the U.S. are at stake in Georgia, and what ways best allow us to achieve those interests.  Can they be safeguarded in cooperation with Russia?  If they cannot, are we prepared to insulate the Georgians from the possible consequences?

And here is where I continue to stand by last week's assessment.  I don't believe that we are.  Somehow, people have the belief that we should encourage the Georgians to engage in policies that would be seen by Russia as infringing on its legitimate political and economic interests but that Russia will continue to subsidize Georgia without the need for extensive American intervention.  (And some people seem to think that Russia has no legitimate interests outside its borders at all.)

But let's call the bluff.  If we want to break Russia's economic stranglehold over Georgia, the United States could amass a strategic fund that would be capable of paying off Georgia's debts--at an immediate cost of $1.8 billion.  The U.S. government could offer significant tax breaks and outright financial assistance to firms to perhaps construct new power generation facilities and develop Azerbaijan's gas fields to supply Georgia--and guarantee that in the meantime, the United States would provide sufficient financial assistance so that gas and electricity could be purchased from Russia debt-free.  The INS could authorize 100,000 visas for Georgians to come to the United States to live and work.

I've enjoyed watching the reaction on people's faces to these ideas--along with the chorus of "are you crazy?" or "this isn't politically possible."  The business community has no enthusiasm for such projects--let's not forget that AES sold its Georgian assets--at a significant loss--to Russia's UES precisely because they were not profitable.  But this is the cost we must be prepared to pay if we encourage Georgia to undertake a course of action likely to rupture its relations with Russia. So the United States runs the risk that, like the Hungarians in 1956 or the Bosnian Muslims in 1992, the Georgians in 2003-04 will assume they have greater support from the U.S. than will actually be forthcoming.

In the Caucasus, the United States is like a champion Olympic swimmer, testing the waters, but not ready to commit to jumping in--and the fact that we are an Olympic swimmer doesn't help us get to the other side of the pool if an older, somewhat decrepit swimmer decides to take the plunge. Throwing a temper tantrum or trying to get the lifeguard to roust the other swimmer out of the pool isn't effective.

I personally think that we can pursue a policy that takes Russian interests into account without compromising Georgia's independence or sovereignty and maintaining that key U.S. interests in the region are maintained. But realistic, pragmatic policies don't make for good speeches.

Nikolas K. Gvosdev is executive editor of The National Interest.